Governance or Poverty Reduction? Assessing Budget Support in Nicaragua

Abstract

General Budget Support (GBS) is assumed to lead to more effective poverty reduction through non-earmarking of the money and through recipient country ownership. A second and more hidden objective of GBS, however, is to influence policies and governance of recipient countries. This article develops an evaluation framework that takes the tensions between these two objectives into account. It then assesses the results of GBS in Nicaragua under two administrations. It concludes that for most donors, the aim of improving governance was more important than poverty reduction, in both government periods, thus reducing the effect of GBS on poverty reduction. In addition, donor influence on governance was limited.

Acknowledgements

The article is largely based on an evaluation carried out for the Policy and Operations Evaluation Department (IOB) of the Dutch Ministry of Foreign Affairs, http://www.minbuza.nl/binaries/content/assets/minbuza/nl/import/nl/producten_en_diensten/evaluatie/afgeronde_onderzoeken/2010/12/iob_evaluatie_van_de_nederlandse_steun_aan_nicaragua_2005_2008/iob-nr.-329-evalua tion-of-general-budget-support-to-nicaragua-2005–2008. The author thanks Arturo Grigsby (Nitlapán, Nicaragua) for his contribution to that evaluation and an anonymous referee for helpful comments. Opinions expressed in this article are those of the author only.

Notes

1. The approval meant that abortion would be punished even if the life of the mother was in danger or if the pregnancy was the result of rape.

2. The first implies handing over a cow, a pig and a hen to a poor household, the second is a transfer of credit to female micro and small enterprises at an annual interest rate of 4 per cent.

3. According to the NGO Etica y Transparencia, as published in Revista Envío No. 332, March 2009, http://www.envio.org.ni/articulo/3952.

4. Norway was willing to continue but did not want to be the sole remaining bilateral donor. Because this donor did not agree with the political use of the GBS instrument, it decided to leave the JFA in early 2009.

5. Venezuelan aid was dependent on the oil price, which decreased at the end of 2008.

6. In 2005, 41 per cent of all actions and indicators was complied with, in 2006 only 33 per cent. This figure increased to 83 per cent in 2007. In 2008, 37 per cent of actions and indicators was complied with fully, while all others were achieved to a 50 per cent degree. Source: interview with government GBS coordinator.

7. Representatives of the Dutch Embassy in Nicaragua argued that this was partly due to the fact that headquarters hesitated too long in making this decision.

8. This conclusion is based on estimates of transaction costs involved in all three types of transaction costs for GBS and for projects, for donors and for government, and comparing this with the relation between the average annual amount of GBS disbursements (US$75 million) and the size of the average bilateral or multilateral project (US$5 million). The estimated transaction costs for GBS do not exceed 15 times the average project transaction costs.